Renaissance Capital on SSA’s Changing Export Patterns
Friday, 02 November 2012
Trade is the channel through which Sub-Saharan Africa (SSA) experiences the most severe effect of a global downturn. This implies that SSA economies that largely trade with the region experiencing the worst downturn – the EU (such as Southern Africa) – and/or have high export/GDP ratios (such as the Republic of Congo) are most exposed to the slowdown in global growth we expect in 2012 and 2013. Countries with greater exposure to emerging markets (EM) (such as Angola), particularly China, will not be unaffected, given the softening of growth in these economies, which has challenged the decoupling argument. The US fiscal cliff implies that SSA economies that are big exporters to the US may experience slower demand in 2013.

SSA’s exposure to the EU is at its lowest. Strong trade relations persisted between SSA and the EU long after colonialism ended, with SSA exporting raw materials to and importing finished goods from the EU. In 1960, when colonialism was ending, two-thirds of SSA’s trade was with the EU. Over the next four decades, the EU’s importance as SSA’s trade partner declined, as SSA sovereigns developed new trade relations. However, the 1990s was the decade when SSA’s trade relations showed the biggest change. In 1989, the EU accounted for 50% of SSA’s total trade. A decade later this share had dropped to 38% and it fell further in the 2000s. In 2011, 25% of SSA’s trade was with the EU, the same proportion as with developing Asia. This is a significant reduction in SSA’s exposure to the EU in the course of two decades, which implies that the region’s exposure to an EU recession is lower than it used to be.

China is now SSA’s biggest bilateral trade partner.
In 2009, China surpassed the US to become SSA’s biggest trade partner. China’s ascendance mostly occurred over one decade, the 2000s. In 1960, when SSA countries were making the first transition from colonies to sovereign nations, SSA’s biggest bilateral trade partner was the UK (26% of total trade), followed by France (18%). This is not surprising, as these countries were two of SSA’s biggest colonisers – the UK had 18 colonies and France 14, by our estimates. Over the next two decades, the UK’s dominance as a trade partner declined and the US emerged to become one of SSA’s two biggest trade partners, together with France. However, in the late 1980s and 1990s, France’s share of SSA’s trade fell. This happened as China’s trade with SSA accelerated, such that by 2009 China became SSA’s biggest bilateral trade partner, ahead of the US. In 2011, 15% of SSA’s trade was with China, followed by 12% with the US.

The EU has gone from SSA’s biggest export market at colonialism’s end,
to being on a par with developing Asia. The EU’s market share dropped from 71% of SSA’s exports in 1960 to almost half in the mid-1990s and to one-quarter in 2011. In 1995, when commodity prices were low and just before they began to trend upwards, the EU was the market for 43% of SSA’s exports. By 2011 – after a commodity boom, a global financial crisis and a double-dip recession in the EU – the EU’s share of SSA’s exports had dropped to 25%. As commodity prices took off (on the back of strengthening demand from developing Asia), at the beginning of the millennium, EU's importance to SSA as an export destination declined. Developing Asia, largely driven by China, has emerged to rival the EU as an export destination. In 2011, 23% of SSA’s exports were destined for developing Asia, a dramatic increase from 6% in 1995.

SSA’s biggest bilateral export destination is the US.
Of SSA’s four regions, the US is most important to Western Africa (as defined by UNCTAD) as an export destination. In 2011, 25% of Western Africa’s exports went to the US, compared with 11% in 1960. Oil is the main reason for the increase in the US’s importance as an export destination. Nigeria, which makes up two-thirds of Western Africa’s economy, is a major exporter to the US. In 2011, Nigeria shipped 30% of its exports (97% of which comprised oil) to the US, up from 10% in 1960. Interestingly, only 1.4% of Nigeria’s exports went to China, which is more important to Nigeria as a source of imports – 17% of Nigeria’s imports came from China in 2011. The US is a less important export destination for the rest of Western Africa. Ghana, the second-biggest economy in the region, sent only 9% of its exports to the US in 2011, while the EU is the market for over half of Ghana’s exports. We believe the EU’s dominance as an export market for Ghana is likely to moderate now that the country is producing oil for export.

Intra-regional trade accounts for one-tenth of SSA’s trade, and appears to be losing out to China. Although SSA’s intra-regional trade improved to 11% of the total in 2011, from 4% in 1960, this is down from 15% in 1997. SSA’s trade with China surpassed SSA’s intra-regional trade in 2009. As a large share of SSA’s intra-regional trade largely reflects trade with South Africa (SA), the slowdown in intra-regional trade partly reflects a decrease in that trade, which declined to 3.1% of the total in 2011, from 5.4% in 1997. Outside of the Southern African Customs Union (SACU), Eastern Africa has the largest share of trade with SSA (12%), vs Western Africa’s 2% and Middle Africa’s 3% (NB: regions are defined by UNCTAD). Eastern Africa’s relatively high share largely reflects the significant reliance of Malawi, Mozambique, Zambia and Zimbabwe on SA as a source of imports.

Nigeria is SSA’s biggest exporter to the rest of the world.
Almost 30% of SSA’s exports outside the region originate in Nigeria, and three countries – Nigeria, SA and Angola – dominate extra-regional exports, accounting for 70% of the total, implying that SSA’s exposure to a global downturn through trade is concentrated in these three countries. We believe the impact on Nigeria and Angola is mitigated by their limited exposure to the EU.

For more information, contact Yvonne Mhango ( This e-mail address is being protected from spam bots, you need JavaScript enabled to view it ).


 



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